From Climate Scepticism

By Mark Hodgson

It’s only a decade away

In Economical With the Truth I took issue with a BBC Verify report that asked, “If the UK has more renewable energy, why aren’t bills coming down?”. It ignored lots of the net zero-related reasons for this, and largely blamed gas prices, while continuing to claim that renewable energy is cheap, and will deliver lower prices in due course.

It may as well have been a dry run for a report released today by Energy UK (“the voice of the energy industry”), and which makes many of the same claims, while indulging in some short-term special pleading.

Although Energy UK claims to be the voice of the UK energy industry, it is completely signed up to the net zero agenda, fossil fuel outfits don’t seem to get a look-in, and it might as well describe itself as the voice of the renewables industry (which is doing rather well, given that it already has its own trade body – Renewable UK). Energy UK’s most recent chief executive was Emma Pinchbeck, who is now chief executive of the Climate Change Committee. The Energy UK board she leaves behind includes top people from Centrica, Drax, E.ON UK, EDF, and a new chief executive who is on the board of Green Alliance and who, prior to joining Energy UK, led work on net zero, the future energy system and decarbonisation at Citizens Advice. Its Chairman is David Laws, former leading MP for the Liberal Democrats, a party also extremely keen on net zero. Others have biographies that tell us they variously held roles across low carbon generation at Equinor, Orsted and EDF Energy; have worked in the Executive teams at Ofgem and National Grid ESO, leading a range of operational functions, with responsibilities spanning decarbonisation, network development, and security of supply; helped to deliver the CBI’s “ground-breaking” report on climate change in 2007, which helped shift the perception of the role business can play in the low-carbon economy, and set up and led the CBI’s climate change team before becoming Director of Infrastructure; and so on. We get the picture.

No surprise, then, that today’s report, which runs to just 15 pages, including frontispiece, executive summary, and lots of large graphs, seeks to tell us that we need to decarbonise faster to enjoy cheaper electricity prices, but that we might need some government (aka taxpayer) help in the short term to get there.

It tells us that UK energy bills are too high, and that the consequence is that growth is being held back and living standards are being damaged – at least we can agree about that. 40% of customers struggle to afford energy, over three million households live in fuel poverty, and energy debt is running at a record high of close to £4 billion. Fortunately, the government has committed to reducing bills by “up to” £300 by 2030, and reducing our reliance on international gas prices is the only long-term answer (apparently). The problem is, although the report reiterates (without evidence) that the “Clean Power mission” will lead to lower energy bills, there’s a bit of a problem with that happening by 2030. They are supremely confident that “Clean Power” will achieve tangible results in the next decade, but there’s still an issue:

Whilst wholesale prices may start to decrease by 2030, it’s expected that increases in other parts of the bill may offset these reductions. This presents a clear problem.

It’s all gloriously vague, but – so they say – a rapid acceleration of critical network connections could reduce bills by £100, and extending the length of the Contracts for Difference from 15 to 20 years could enable an additional £20 reduction (apparently). But savings are only going to be achieved by behavioural changes by customers – heat pumps, solar, EV charging, and other forms of consumer “flexibility” (weren’t we told that this wouldn’t be necessary?).

Hilariously (well, it would be hilarious, were it not so serious) we are told that one of the main reasons bills are so high is because:

Many of the costs of transition to a clean energy system are being levied on energy bills, rather than being paid for through general taxation. This includes increases in existing schemes such as Contracts for Difference (CfD) and the Capacity Market, as well as new charges to fund investment in technologies such as nuclear, hydrogen, and carbon capture and storage.

Shocking, isn’t it? What is the government thinking of? The huge extra costs of “Clean Power”, which mean that it isn’t cheap at all, are visible for energy users to see, right there on their energy bills. Far better to pretend, and to fund the costs through general taxation (which we all pay anyway) and to pretend that energy bills are cheap!

There follows a graphic which explains that annual bills by 2030 will be impacted by various factors:

Distribution networks account for £138 as local grids are reinforced to cope with rising demand.

Transmission networks account for £40 to fund long distance lines to connect more capacity.

Capacity market accounts for £21 to pay for backup generation.

System operations account for £32 because curtailment cost could double by 2030.

Contracts for difference account for £34 – they are likely to increase as more capacity comes online.

Legacy renewables subsidies account for £121. It is hoped Renewables Obligation and Feedin Tariff costs will start tapering away from 2027, saving around £10 off typical bills by 2030, but there will be some costs until the 2040s.

They hope that gas will set the price of electricity less frequently. They assume that this will gradually save the current cost of £311.

Supplier costs and VAT account for £208. They assume that these won’t change significantly.

Key mechanisms to reduce bills

There follows a table which includes some of the same fallacious thinking as that above which seems to think that energy costs are covered by general taxation so that they don’t appear on our energy bills then they are not costs at all. For instance, “targeted customer support” (essentially taxpayer money being diverted to help those customers who are struggling the most) could save £400 per annum for the 3.17 million households currently in fuel poverty. Then there’s the £13.2 billion already committed to in the Labour Party manifesto to “invest in energy efficiency”, which might save £140 per annum on the average bill. But it all still costs the taxpayer.

Making British business more competitive

Businesses are just as impacted by high energy costs as households – especially manufacturers competing with foreign firms who face much lower costs, including those in Europe, the United States and China. Most of these options will also reduce costs for businesses because they lower the total cost of the system. Businesses can also be supported by more targeted policies, including investment in electrification, exemption from certain costs (like the supercharger) and a review of non-domestic policy costs.

Can you spot the flaws? No questions are asked as to why countries with proportionately much less “Clean Power” – especially the US and China – have “much lower costs” than UK businesses. “Supporting” businesses by more targeted policies and exemption from certain costs is moving the deckchairs on the Titanic – we are still heading for the iceberg.

Optimising the energy system to deliver savings

Here we really enter Looking Glass World. First up is “maximising flexibility”, which really amounts to insisting that consumers use energy when they don’t want to and can’t have it when they would like it. “Flexibility” is a euphemism for rationing in this context. It’s also only really effective for households with batteries, heat pumps and EVs, and even they are said to be in line for possible (“could” is the word they use) savings of just £115 per annum. For the rest of us (we might, for instance, run dishwashers overnight) “smaller reductions” will be achieved. You can say that again. Pressing on with the roll-out of smart meters is also part of this wizard wheeze, despite the problems they have experienced to date, and the ongoing huge costs (£18 billion?). Bizarrely, this section of the strategy is described as having minimal costs.

Working with our European neighbours, they say, could save £10 billion this Parliament. Where that figure comes from is a mystery, since they talk of annual savings of £120-£370 million. They want us to link carbon trading systems, and to achieve more efficient electricity trading arrangements. It isn’t explained, but I assume that this is a reference to the use of the interconnectors. Given that we are massive net importers of electricity via said interconnectors (and we tend to offload when it’s windy and sunny, and buy during dunkelflautes), it’s difficult to understand what benefits we can achieve here. Do they really think our continental neighbours will pay higher prices to us for electricity when there’s a glut and charge us lower prices when there’s a shortage? This section ends with a bizarre – and very discouraging – paragraph:

If this issue is not resolved over the coming years, the costs to households and businesses is forecast to increase substantially in the 2030s given the combination of highly interconnected European markets and the UK’s role as a net electricity exporter.

Net electricity exporter? Really?

I have to quote the next paragraph in full, both because of the reality of the costs it expresses, and the naivety of the thinking as to how those costs can be reduced:

The system operator manages the electricity system in real time by paying power stations to turn their production up and down. The cost of this will increase from £2.4 billion in 2023/24 to an estimated £4.7 billion in 2030,20 although successfully achieving Clean Power by 2030 will play an important role in reducing these costs. Charging and discharging batteries is often the cheapest way to balance the system. However, over three-quarters of the time21 the system operator uses a more expensive power station – often a gas plant – because its systems were not designed to cope with lots of small batteries. Continuing to upgrade the national control room will allow us to use more, cheaper batteries as well as encouraging further investment in clean energy. Giving the system operator a clear objective to operate the system more effectively – from system planning to re-dispatching power stations and encouraging all flexibility to participate in markets – could significantly reduce costs.

Investing public money in a strategic and targeted way to deliver significant guarantee bill reductions

Here the paper doubles down on the idea that re-directing taxpayer’s money to ease the burden on bill-payers (“The only way to lock in significant energy bill savings by 2030 is by injecting public money into the energy system) is somehow a solution to the problem of the high costs associated with rushing to decarbonise the grid by 2030. They clearly don’t understand (or don’t want to accept the reality) that is simply robbing Peter to pay Paul (or, often, robbing Peter to pay Peter).

Energy bills are high because some of the costs of decarbonising the energy system are added to energy bills (or, as they would have it “Energy bills are artificially inflated by the costs of government policies recovered from bills, costing the typical household £180 per year). This discourages households from switching to electricity for heating, via devices such as heat pumps. The answer is – to them – blindingly obvious:

Removing all policy costs would cost around £6.5 billion a year and save households between £130 and £370 per year. The Government should also ensure that future policy costs such as CCUS, hydrogen, and nuclear don’t exacerbate the gas to electricity price ratio.

Of course, the £6.5 billion removed from bills every year will be added to our taxes instead. The same is true of their proposed expenditure of £1.5 billion per annum from general taxation to help bill-payers in fuel poverty. And it’s also true of the £13 billion warm homes plan, which they reckon will save £140 per annum on the average bill. That last proposal might have more logical merit than the others, but I’d like to see a detailed costing acoompanied by a realistic cost/benefit analysis first.

Capitalising on the benefits of a rapidly evolving energy system

This strikes me as a strange heading for the section that follows. NESO, they say, estimate the cost of achieving “Clean Power” by 2030 at £200 billion.

In the short run, that investment must be paid for. It can be paid for either by taxpayers or billpayers, now or in the future. The more costs are moved away from current consumers, the lower bills will be in the short term.

This is just more of the same. Transfer the costs from bills to general taxation. Hope the consumers see lower bills and that they don’t realise that this is paid for by their higher tax bills.

They recognise that the massive, planned extension of wind power will be paid for via the Contracts for Difference (CfD) regime. In order to bring down the annual costs of CfDs, they suggest extending their life from 15 to 20 years. Investors will no doubt love the extended government price guarantee (how many businesses enjoy such a guarantee over 15 years, let alone 20?), but the claimed annual saving for consumers of £15-20 per annum is dubious, and is in any event paltry given the extent to which the agenda has raised costs to date and continues to do so.

They acknowledge that “[a]chieving clean power by 2030 will require £60 billions of investment in energy transmission. This will ultimately be recouped via energy bills” but they believe that accelerating critical connections (this “will require boldly driving them through the planning process”) could save £50 per household in 2030 (and not before then). Wow! Trash the planning process so that infrastructure developers can ride roughshod over local communities and keep your fingers crossed that in five years’ time it will possibly knock £50 per annum off our bills.

The next suggestion is little better (possibly worse):

To achieve policy cost rebalancing for non-domestic users, legacy renewables policy costs and Climate Change Levy payments should be moved off energy bills. This reduction in electricity bills would be partly funded by gradual increases to gas CCL rates leaving £1-4 billion of revenue a year to be covered by general taxation and hypothecated CBAM and ETS revenues. This proposal could save UK supermarkets up to 15% on their energy costs, which could translate to cheaper groceries for British households. A typical pub not serving food would see very little change in its short-term bills (+/- 5%), but would be incentivised to electrify its operations, saving around 15% on its energy costs.

All highly dubious, and involves no reduction in costs, simply a policy of moving bill costs to general taxation again. This doesn’t make anybody better off at all, but no doubt it helps the energy companies.

Where does this leave us?

The report ends by asking this question. Where indeed? Not in a good place, that’s for sure.

The Guardian, of course, reports on all this in a reasonably favourable way, and concludes with a quote from DESNZ:

As shown by National Energy System Operator’s independent [sic] report, clean power by 2030 is achievable and will deliver a more secure energy system, which could see a lower cost of electricity and lower bills.

The operative word is “could”. One thing is clear – UK bill-payers face some of the highest energy bills in the world and the next five years are likely to see them increasing substantially. Energy UK’s proposals don’t deal with that fundamental problem. At best we will be paying those extra costs via general taxation rather than via our energy bills, but however they cut it we will all be much worse off.